Report of the Board of Directors. Annual Report this document is signed digitally--

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1 Report of the Board of Directors Annual Report 2017

2 Contents Chief Executive Officer s Statement 3 Report of the board of directors 5 Financial Statements Consolidated statement of comprehensive income 17 Consolidated balance sheet 19 Consolidated cash flow statement 21 Consolidated statement of changes in equity 22 Notes to the consolidated financial statements 23 Separate company balance sheet 54 Separate company income statement 55 Notes to the separate company financial statements 56 Other information 64 Auditor s report 66 2

3 Chief Executive Officer s Statement The year 2017 has been a successful year as we continued to focus and execute on our market priorities in both North America and Europe. It has been an even more interesting year in that it seems we have arrived at a real tipping point with regard to new Container Deposit Systems schemes CDS in several European markets. With the ever-increasing consumption of beverages in plastic containers, there is a clear and growing demand that the plastic container pollution be addressed. Driven by floating continents of plastic in our oceans, mountains of plastic in our landfills and stagnating recycling rates, the call for action is building. This call is being led by NGOs, the United Nation, the European Union and other governments. CDSs are well proven in Germany, Sweden, Norway, Finland, Denmark and elsewhere to guarantee high recovery rates for used beverage containers. There are serious legislative discussions in Scotland, Wales, England, Cyprus and Malta to adopt CDS schemes in the next months. What has changed though is the normal industry opponents to CDS have dropped or muted their opposition. The most important of these opponents is the retailers where in the UK they have come out in support of CDS. Major beverage companies have dropped their steadfast opposition to CDS. Waste management companies that operate the curbside systems have engaged with how they may participate in CDS schemes. With strong consumer support, activist and government engagement and the change in industry opposition, the prospects for new CDS schemes looks very encouraging. There are also a number of active discussions in other European markets including France, the Netherlands and Spain. Envipco has extensive experience in all aspects of CDS from RVM technology, to logistics, to information management. Envipco is a strong #2 competitor in the established North American market against the Global #1. Envipco has steadily gained market share in North America with excellent customer relationships, technology leadership and superior service delivery. We have successfully entered the European market in Sweden against the dominant Global supplier. The European deposit markets have traditionally been developed around the handling of refillable containers. The market has shifted almost entirely to one-way containers and the new CDS initiatives are targeting this package. Envipco has the most comprehensive line up of RVM s for one-way containers. Our U48 single feed RVM competes with the leading supplier as demonstrated in the North American market. Our Flex platform is ideally suited for the smaller shops and handles all containers in one machine at a very attractive price point. I believe that there is no competitive offering to Flex. Our most innovative and exciting platform is Quantum, which provides high speed, revolutionary bulk feed handling of beverage containers. It also incorporates a very versatile digital platform with latest technology. Our entry to the Swedish market was predicated on the launch of Quantum. Quantum has been a resounding success in the Swedish market with Returpak (The Swedish Deposit System) installing and committing to over 30 outdoor systems. We are gaining traction with the retailer community in both the indoor and outdoor configurations. We are increasingly seeing retailer interests in moving to outdoor Quantum locations and being able to reclaim instore retail space now dedicated to bottle return. Quantum has a consumer-friendly outdoor enclosure that has been proven in winter conditions. Consumer preference for bulk-feed handling over single feed RVMs is overwhelming. Quantum is driving increased container returns of over 100% on average. Our technology line-up, our strong service and support reputation, fair pricing policy places us in a strong position to compete in new deposit markets. We have Flex for the small shop, U48 to compete head to head on traditional single feed RVMs and the revolutionary Quantum for high speed bulk container handling. Quantum more importantly provides the retailer the flexibility for outdoor installation eliminating the need for instore renovation and loss of retail space. The demand for RVM machines in new CDS markets could exceed 50,000 in the next several years. The potential of new CDS schemes in Europe makes it imperative that Envipco undertake the necessary activities and investments to ensure that we are well represented competitively. Envipco plans to build on the North America and Swedish success and leverage this into strong representation in new markets. We are planning to expand our European head office, expand our business development resources, engage in legislative discussions and engage in retailer presentations and pilots. At the same time, we are preparing in scaling up our engineering and manufacturing capabilities to guarantee delivery of significant RVM quantities at the onset of new deposit markets. The company will be evaluating plans and financing scenarios to undertake the necessary investments to ensure our participation in these exciting market opportunities. 3

4 Chief Executive Officer s Statement Continued execution in our established markets while preparing for the wave of new deposit markets will certainly position the company for sustained long-term performance to the benefit of our customers, our employees and our shareholders. B. Gool Santchurn 4

5 Report of the Board of Directors Financial Highlights Continuing operations Revenues 34.05m 33.11m Gross profit margin 35.59% 35.19% Net profit (loss) before taxes 0.66m 1.12m Net profit (loss) after taxes after minority (2.54m) 5.24m EBITDA 4.25m 4.56m Earnings (loss) per share (0.69) 1.46 Equity Shareholder s equity 20.60m 23.45m Liquidity ratio (current assets / current liabilities) Total assets 35.05m 40.75m General Envipco Holding N.V. is a public limited liability company incorporated in accordance with the laws of The Netherlands. Envipco Holding N.V. and its subsidiaries listed on page 27 consist of the Group (hereafter the Group). Mission statement Our mission is to become the most respected global company that develops and operates automated solutions to recover used beverage containers, while creating high value for our shareholders, customers, partners and employees. We believe these objectives can be achieved by our strategy to grow and win market share by delivering innovative technologies, while providing superior service at competitive prices. The Group s principal activity is the design, development and operation of automated solutions to recover used beverage containers which includes: The design, development, manufacture and sale or lease of Reverse Vending Machines (RVM) as the foundation of recycling systems for the collection and processing of used beverage containers. The provision of technical support, RVM maintenance and accounting services to the retail stores, bottlers and distributors for containers redeemed through these machines. Provision of materials handling services, primarily in the Northeastern part of the United States of America (USA), for containers that are subject to deposits mandated by law. 5

6 C Report of the Board of Directors Key Developments The Group s key developments during 2017 were as follows: a) Revenues grew in 2017 by 2.8% to 34.05m from 33.11m in b) Gross profit increased 4.0% for 2017 to 12.12m from 11.65m in For the year 2017, gross profit margin improved to 35.6% from 35.2% in c) EBITDA declined 6.8% in 2017 to 4.25m from 4.56 in The decline is attributable to increased operating expenses around European market activities along with increased IP enforcement legal cost. d) Net profit (loss) after taxes declined to a loss of (2.54m) in 2017 from a profit of 5.24m in This decline principally resulted from changes in USA tax law and expected timing on utilization of tax loss carryforwards. e) Strong growth in Sweden with continuing adoption of the company s revolutionary bulk-feed Quantum platform. f) Sale of 240,000 treasury shares that generated 1.97m of proceeds used for European expansion. g) Significant increase in prospects for new Container Deposit Systems in Europe tied to growing awareness and activism to address plastic container pollution. Results Total revenues increased 2.8% in 2017 to 34.05m. North American revenues were flat in 2017 compared to In local currency, the 2017 North American revenue was up 2.0% when taking effect of the Euro to USD currency conversion. European revenues were up 45.0% in 2017 to 3.91m from 2.70m in Sweden was up 138.0% in 2017 to 2.61m. Gross profit increased 4.0% in 2017 to 12.12m. Net profit before tax declined to 0.66m in 2017 from 1.12m in The decline is attributable to increased operating expenses for the year 2017 of 9.4% to 11.30m. Approximately 0.60m of the increase relates to expanded manufacturing capability, improved systems and processes and expanded market specific R&D in our German operation. Holding expenses increased by 0.30m related to increased IP legal cost and increased R&D amortization expense. Net profit (loss) after tax declined to a loss of (2.54m) in 2017 compared to a profit of 5.24m in For 2017, taxes increased to an expense of 3.20m from an income of 4.14m in In 2016, the company recognized a 4.0m tax loss carry-forward. In October 2017, the USA passed tax reform legislation that significantly reduced the corporate tax rate from 35% to 21%. This tax rate change necessitated an overall review of the associated tax asset. As part of this review, the company evaluated the tax rate, accelerated depreciation provisions, anticipated operational investments and potential timing tied to new container deposit legislation. While we anticipate that the tax loss carry-forwards will be fully realized in the future, we have adjusted the asset carrying value for the tax rate changes and potential timing. EBITDA for the year 2017 declined to 4.25m from 4.56m in The decline is attributable to increased operational expenses in our German operation as discussed above. Shareholders equity declined to 20.6m at year end 2017 compared to 23.5m at year end Shareholders equity in 2017 was positively impacted by issuance of 240,000 treasury shares that generated 1.97m in proceeds and by 0.66m from operating performance. Shareholders equity was negatively impacted by 2.3m in currency translation adjustments and by the tax asset adjustments of 3.2m of capitalisation in future years. 6

7 C Report of the Board of Directors North America Our North America market performed well in Revenue of in 2017 was flat with 2016; revenue was up in local currency for the year by 2.0%. North America program services revenue was up 1.0% in local currency for 2017 while RVM machine sales was up 9.6%. The company launched our bulk feed technology Quantum in the Michigan market during the third quarter of Customer reception and technology performance has been very positive. We anticipate additional Quantum placements in 2018 with our launch retailer. In addition, we are engaged in a number of other market opportunities for introduction of Quantum in The North American business is expected to continue to perform well with sustained market share gains and profit performance based on execution against our long-term contracts and also realization of new market opportunities provided by Quantum and Flex. Europe Our Europe revenues increased 45.0% in 2017 to 3.91m from 2.70m in Sweden performed well in 2017 with a 138.0% increase in revenue to 2.61m. The Swedish market performance continues to prove the disruptive nature of our bulk feed Quantum platform. With strong consumer preference, significant deposit container volume increases and the flexibility for outdoor installations; Quantum is a clear winner. We have continued expansion with Returpak and now have installed and committed over 30 outdoor installations. The retailer community is taking note of Quantum s success as we are engaged in an increasing number of retailer discussions for both indoor and outdoor Quantum installations. We expect continued positive developments in Sweden during 2018 will lead to new Nordic market opportunities and also establish the case for expansion into Germany. Revenues for the non-deposit markets of Greece and France in 2017 declined to 1.29m from 1.60 in Our distributor activity in these markets remains strong as they build on their established relationships and mechanisms to support new RVM placements. This activity is further supported by discussions in each market surrounding container deposit schemes. As discussed in the Chief Executive Officer s Statement, there has been a real change in the prospects for new Container Deposit System CDS legislation in a number of European markets. The most advanced of these seems to be in the United Kingdom, Scotland and Wales. Envipco has extensive experience in all aspects of CDS and also has an unparalleled technology suite of single and bulk feed RVMs. The outlook for our European business is very strong given our performance against the market leader in Sweden and especially the prospects for new CDS markets. 7

8 C Report of the Board of Directors Rest of World ROW revenue, which currently reflects the Australian market was zero for the full year 2017 compared to 0.27m for the full year The recently implemented deposit legislation by the Australian Government of New South Wales (NSW) resulted in a system that has reduced reliance and benefits than traditionally result from RVM machines. This impact is from fewer collection points and no RVM compaction for logistic efficiencies and duplicate container redemption security. This efficiency of this model is being constantly challenged by several parties. We are also engaged with our distributor in the Queensland and Western Australian container deposit discussions where we anticipate a more traditional use of RVM machines. Intellectual Property Envipco maintains a strong patent portfolio along with the commitment to protect our intellectual property. The company is continuing IP enforcement activities in Germany related to a patent granted by the German Patent office that covers a method for how security labels are created and interpreted. The company has incurred legal cost of 0.68m in 2017 compared to 0.50m in Our granted patent had been also challenged by a nullity action filed at the German Patents office in early The German patents office recently issued a preliminary decision on the nullity case that argued our IP claim offers no innovation. We are strongly contesting this preliminary decision, which we believe will be overturned due to several arguments filed in court. The company expects to continue to incur cost on this matter in defense of our IP rights, as it believes it will prevail in asserting infringements of its IP. Overall Outlook The company sees a very positive outlook for the business considerate of sustained North America performance, continued market execution in Sweden, continued expansion in the European non-deposit markets and the significant potential for expansion tied to new container deposit legislation in Europe. Envipco has the experience and technology to be a significant player in these new European market opportunities. The company has demonstrated technology leadership and its ability to compete with a dominant competitor in the Swedish market. Our revolutionary bulk-feed Quantum continues to show strong consumer preference and this combined with the most complete offering of single-feed RVMs well positions the company for market success. The company is currently evaluating plans and financing scenarios to undertake the necessary near-term (two year) investments to ensure our participation in these exciting market opportunities. The company has adequate bank facilities/credit lines in place, along with shareholders support to fund our current market activities. As noted above, the company is evaluating additional financing in support of expanded European market opportunities. 8

9 C Report of the Board of Directors Liquidity Group generated 3.18m cash from its operating activities for the year 2017 versus 4.55m during Cash flows used in investing activities were 3.72m for the year 2017 (2016: 5.36m). The 2017 outflows were funded mostly by cash generated from operations during the year along with 1.97m generated from the sale of the treasury shares. Net borrowings decreased by 0.90m during the year 2017 compared to an increase of 1.38m in Managing Risks A majority of our current RVM business is dependent upon legislation. The Company may be at risk if such legislation was cancelled, although we have seen no such cancellations in the area where we have operated over the last 20 years. Theoretically this can happen, but we see that even in such an unlikely scenario there will be a notice period which will help the Company plan for any transition. Equally the reverse can also happen as new legislation is implemented in more states and countries. The Group strategy is to grow and win market share by delivering innovative market solutions at competitive prices along with superior service. The Company may be at risk from competition and new market uncertainties. These risks can be managed by adequate market research to ensure customer acceptance of its products. It also invests consistently in R&D to continually innovate and stay ahead of the competition. Customers with whom we have long term contracts can go out of business which would have an impact on our costs due to lower volumes. Sharp fluctuation in foreign exchange risk can impact the cash situation of the Company but is mitigated by proper cash management. Non-availability of lines of credit or cash to continue to fund projects under a development stage may impact the long-term viability of the Company. For details on financial risk management, refer to note 5 in the notes to the consolidated financial statements. Stichting Employees Envipco Holding ( the New Foundation ) A new foundation, Stichting Employees Envipco Holding was formed in 2011 with following Board members: Mr Dick Stalenhoef Mr Guy Lefebvre 9

10 C Report of the Board of Directors Summary as of 31 December 2017 of Issued Share Capital Common stock of 0.50 nominal value per share: Opening and Closing balance 3,837,607 3,837,607 The new foundation held 240,000 treasury shares of the Company as of 31 December 2016 which were sold during the year For more details please refer to note 20 of the notes to the consolidated financial statements. Substantial Shareholding The Group has been notified of or is aware of the following 3% or more interests at 31 December 2017 and December Number of Shares Percentage Number of Shares Percentage A Bouri/Megatrade International SA 2,558, % 2,558, % G Garvey/EV Knot LLC 234, % 234, % B Santchurn/Univest Portfolio Inc 155, % 140, % Douglas Poling/GD Env LLC 200, % 200, % Stichting Employees Envipco Holding % 240, % Directors and their Interests As per Articles of Association of the Company, the Board comprises of executive and non-executive board members. The Board includes five non-executive and two executive board members: Non-executive: Mr Gregory Garvey (Chairman) Mr Alexandre Bouri Mr Dick Stalenhoef Mr Guy Lefebvre Mr David D Addario Executive: Mr Bhajun Santchurn Mr Christian Crépet 10

11 C Report of the Board of Directors The Directors interests in the share capital of the Group are shown below: 31 December Number of Shares Percentage Number of Shares Percentage A Bouri/Megatrade International SA 2,558, % 2,558, % G Garvey/EV Knot LLC 234, % 234, % B Santchurn/Univest Portfolio Inc 155, % 140, % C Crepet 6, % 6, % D D Addario 80, % 80, % TJM Stalenhoef % % Remuneration of the Members of the Management Board The Board of Directors is comprised of five non-executive and two executive directors. The total remuneration was 742,000 in 2017, as compared to 2016 of 674,000 for the prior year (see note 9). There is an employment contract in place for Mr. Bhajun Santchurn. A loan was granted to Mr. Christian Crepet, a director in 2012 for 20,000 and is repayable by 31 December 2018 (see note 26). Remuneration Policy of the Board of Directors and Senior Executives: According to the Dutch Civil Code, our General Meeting of Shareholders has adopted a remuneration policy in respect of the remuneration of our Board of Directors, which is published on our website. Our non-executive directors propose the remuneration of the individual executive members of our Board of Directors to the General Meeting of Shareholders. Senior executives apply to the CEO and other senior management executives for their respective performance appraisals as part of the remuneration policy. Salary and other employment terms for the senior executives shall be competitive with local markets to retain the best talents. Salary includes both fixed and variable factors which are dependent upon the area of individual responsibility, expertise, position experience, conduct and performance. The variable component is dependent upon specific performance criteria. The Chairman of the Board appointed the CEO whose goals and remuneration package and any changes are proposed to the Board for approval. The remuneration of other senior executives including any changes is agreed by the CEO and the respective executive. Corporate Governance Dutch Corporate Governance Code The Dutch Corporate Governance Code of December 2016 effective 1 January 2017 (the Code ) was complied with. The Code contains principles and best practice provisions for a managing board, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditing, disclosure, compliance with and enforcement of the Code. The corporate governance code can be accessed at Dutch companies admitted to trading on a registered stock exchange or, under certain circumstances, registered on a multilateral trading facility, whether in the Netherlands or elsewhere, are required under Dutch law to disclose in 11

12 C Report of the Board of Directors their annual reports whether or not they apply the provisions of the Code and, if and to the extent they do not apply, to explain the reasons why. The Company acknowledges the importance of good corporate governance. Since 2011 the Company supports the Code ( and has started to implement the relevant provisions of the Code subject to the exceptions set out below: The Company does not comply with the following provisions of the Dutch corporate governance code: II.2 The Company does not have in place a formal risk management system. In the view of the Board of Directors, the Company has adequate measures in place to monitor risks considering the size of the Company. II.2.14 The Company has not published on its website the main elements of the service agreements with the executive directors. In view of the size of the Company, the Board of Directors is of the opinion that publishing elements of the salary of executive directors in the financial statements is sufficient. III.3.1 The Company has not prepared a profile for the non-executive members of the Board of Directors. In view of the size of the Board of Directors, the Board of Directors is of the opinion that this is not necessary. III.3.6 The Board of Directors has not made a schedule of retirement by rotation. In view of the size of the Company, the Board of Directors is of the opinion that this is not necessary. III.4.3 The Company has no secretary. Due to the size of the Company, the Company believes this is not necessary. III.5 The Company does not have a remuneration committee or a selection and nomination committee. The tasks to be performed by these committees are performed by the non-executive members of the Board of Directors. In view of the size of the Company, there is no need to have a separate remuneration committee and a nomination and selection committee. V.3 The Company has no internal audit function. In view of the size of the Company, the Company believes this is not necessary. The internal risks are in the view of the Board of Directors adequately monitored. General Meetings of Shareholders and Voting Rights The Annual General Meeting of Shareholders must be held within six months after the end of each financial year. The notice convening any General Meeting of Shareholders shall contain an agenda indicating the items for discussion included therein. The notice for convening the General Meeting of Shareholders shall mention the registration date and the manner in which the persons with meeting rights at the General Meeting of Shareholders may procure their registration and the way they may exercise their rights. The registration date is the twenty-eighth day prior to the date of the General Meeting of Shareholders. Decisions of the General Meeting of Shareholders are taken by a majority of three/fourths of the votes validly cast, except where Dutch law or the Company s Articles of Association provide for a special or greater majority. Explanatory notes on article 10 of the takeover directive Pursuant to the Implementing Decree of 5 April 2006 relating to Article 10 of Directive 2004/25/EC on takeover bids of 21 April 2004 of the European Parliament and the Council of the European Union, Envipco includes the following explanatory notes: As at 31 December 2017 and 2016 Envipco had issued 3,837,607 ordinary shares. Stichting Employees Envipco Holding held 240,000 shares of the Company at a nominal value of 0.50, which were sold during the year There are no physical share certificates issued, except for entries in the shareholders register. The Articles of Association do not provide for any limitation on the transferability of the ordinary shares. 12

13 C Report of the Board of Directors Significant direct and indirect shareholdings are set out in this report under the section Substantial Shareholdings. Envipco currently does not hold any employee share scheme in which the control rights are not exercised directly by the employees. The voting right is not subject to any limitation. All shares entitle the holder to one vote per share. No securities with special control rights have been issued. No agreement has been entered with any shareholder that could give rise to any limitation on the transfer of shares and/or voting rights. Unless otherwise specified by the Articles, all resolutions at the General Meeting of Shareholders shall be passed by a majority of three/fourths of the votes cast. The appointment, suspension and discharge of the members of the Board of Managing Directors and their remuneration are decided at the General Meeting of Shareholders as per Article 8 of the Articles of Association. The issue of new shares shall be by a resolution of the General Meeting of Shareholders and subject to the provisions of Article 5 of the Articles of Association. The Enterprise Chamber may at the request of the Company, any shareholder of the Company, for shares issued with the cooperation of the Company or a foundation or association with full legal capacity which articles promote the interests of such company, shareholder, order a shareholder who has obtained 30% or more of the Company s voting rights or more to make a public offer in respect of all shares. The above mentioned obligation for a person acting solely or together with others to make a public offer does not apply according to the Exemption Decree on Public Offers (Vrijstellingbesluit overnamebiedingen Wft) in cases where prior to, but no more than three months prior to, the acquisition of 30% or more of the Company s shares or voting rights, the General Meeting of the Shareholders has approved such acquisition with 95% of the votes cast by others than the acquirer and the person(s) acting with him/her. Dutch Squeeze-out Proceedings After a public offer, pursuant to Section 2:359c of the Dutch Civil Code, a holder of at least 95% of the outstanding shares and voting rights, which has been acquired as a result of a public offer, has the right to require the minority shareholders to sell their shares to him/her. Corporate Social Responsibility As a Company dedicated to improving the rates at which the world recycles, Envipco works closely to help all of our clients reach their environmental goals. By helping beverage companies recover significant percentages of their bottles and cans, we have developed customised programs that promote sustainability. Envipco also proactively promotes its comprehensive recycling program and constantly explores new opportunities for greener operations. Within the communities in which we operate, Envipco is an active and engaged citizen. We recognise our potential role as educators, regularly inviting school groups to tour our manufacturing facility to learn more about the process of recycling. We offer scholarships and internship programs to students interested in pursuing environmentally focused careers. We have begun setting up the foundation of good corporate social responsibility principles which we intend to adopt as the Company grows. We plan to implement various initiatives to achieve a high level of employee satisfaction, optimising the use of both internal and external resources to have the most efficient carbon foot print while ensuring the adoption of a high code of conduct and ethics relating to all aspects of our business. 13

14 C Report of the Board of Directors Internal Controls The executive board is responsible for establishing and maintaining adequate internal controls. The executive board members are involved in the day to day management of the USA. Both these members are responsible to implement the management board s decisions and strategy and are also accountable to the management board for their respective organisations. Envipco internal control system is designed to provide reasonable assurance to the Company s management board regarding the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). All internal control systems, no matter how well designed, have inherent limitations, and therefore can provide only reasonable assurance with respect to financial statement preparation and presentation. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with Management s authorisation, assets are safeguarded, and financial records are reliable. Management periodically assesses the effectiveness of the Company s internal controls and believes these to be effective and reliable. The Management Board The Company s Management Board consists of 2 executive and 5 non-executive directors. The non-executive directors shall elect a chairman of the Management Board from among themselves. The Management Board is charged with the management of the Company and is responsible for establishing the Group s strategy and general policies. The executive directors are responsible for the day-to-day management of the Company. Currently the Company does not have any female members in the Management Board. The Company shall be making efforts to appoint female members to its Board at the expiry of current term of the existing members. Audit Committee The Company has established an audit committee which operates pursuant to the terms of reference adopted by the Board of Directors, which are published on the Company s website. The audit committee was established by the Board of Directors on 27 June 2011 and is comprised of three non-executive directors appointed by the Board of Directors. The terms of reference of the audit committee are included in the Board Regulations. The audit committee is chaired by the person appointed thereto by the Board of Directors, provided that this person: i) shall be independent (in the manner prescribed by the Dutch Corporate Governance Code, and set out in the Board regulations), ii) shall not be the chairman of the Board of Directors, nor a former executive director, and iii) shall have the necessary qualifications. The audit committee shall meet at least four times per year, or more frequently according to need. Currently, the audit committee consists of Mr. Stalenhoef as chairperson and financial expert, Mr. Garvey and Mr. Lefebvre. Due to the frequent discussions of the audit committee with senior management within the Group and discussions with our external auditors, the committee is satisfied with its oversight on financial reporting, risk management and audit functions of the Group activities, even though no formal procedure is currently in place due to the frequent involvement of the audit committee members with the senior management. It has therefore not completely formalised this part of the governance code. Nomination The Articles of Association of the Company provide for the number of directors to be determined by the Management Board. The remuneration and the terms and conditions of employment for each director are determined at the General Meeting of Shareholders. Representation The Company is represented by the Management Board or by one executive director. 14

15 C Report of the Board of Directors Meeting Meetings of the Management Board are convened upon the request of a member of the Management Board. Resolutions of the Management Board are passed by an absolute majority of votes. Articles of Association Per Article 9 Clause 9.8 of the Articles of Association, the Management Board shall require the approval of the General Meeting of the Shareholders for resolutions concerning a major change such as the amendment of the Articles of Association of the Company. Auditors The General Meeting of Shareholders shall appoint the auditors of the Company. Post Balance Sheet Events Details of the post balance sheet events are given on page 53 of the notes to the consolidated financial statements. 15

16 C Report of the Board of Directors Board Responsibility Statement In accordance with best practice II.1.5 of the Dutch corporate governance code of December 2016, the Board of Directors confirms that internal controls over financial reporting provide a reasonable level of assurance that the financial reporting does not contain any material inaccuracies and confirms that these controls functioned properly in the year under review and that there are no indications that they will not continue to do so. The financial statements fairly represent the Company s financial condition and the results of the Company s operations and provide the required disclosures. It should be noted that the above does not imply that these systems and procedures provide absolute assurance as to the realisation of operational and strategic business objectives, or that they can prevent all misstatements, inaccuracies, errors, fraud and non-compliances with legislation, rules and regulations. The Company s directors hereby declare that, to the best of their knowledge: -the annual financial statements for the year 2017 give a true and fair view of the assets, liabilities, financial position and the profit or loss of the Company and its consolidated entities; -the directors report gives a true and fair view of the position of the Company and its related entities whose financial information has been consolidated in the annual financial statements as at the balance sheet date 31 December 2017 and of their state of affairs during the financial year 2017; -the annual report describes the principal risks that the Company faces. w.s. Gregory Garvey w.s. Alexandre Bouri w.s. Dick Stalenhoef w.s. Guy Lefebvre Chairman w.s. Bhajun Santchurn w.s. Christian Crepet w.s. David D Addario 27 April

17 Consolidated C Report Income of the Statement Board of Directors for the year ended 31 December (in thousands of euros) Note Revenue (6) 34,049 33,114 Cost of revenue (19,743) (19,257) Leasing depreciation (2,188) (2,204) Gross profit 12,118 11,653 Selling expenses (7) (1,174) (1,261) General and administrative expenses (7&9) (10,123) (9,065) Other income/(expenses): - Miscellaneous income/(expenses) (8) 9 49 Operating result 830 1,376 Financial expense (10) (299) (260) Financial income (10) 3 25 Exchange gains/(losses) 128 (26) Result before taxes 662 1,115 Income taxes (11) (3,201) 4,136 (3,201) 4,136 Net results (2,539) 5,251 Other comprehensive income Items that will be reclassified subsequently to profit and loss Exchange differences on translating foreign operations (2,279) 733 Other movements (7) - Total other comprehensive income (2,286) 733 Total comprehensive income (4,825) 5,984 17

18 Consolidated Statement C Report of of Comprehensive the Board of Directors Income for the year ended 31 December (in thousands of euros) Note Profit attributable to : Owners of the parent Profit/(loss) for the period (2,540) 5,241 (2,540) 5,241 Non-controlling interest Profit/(loss) for the period Total Profit/(loss) for the period (2,539) 5,251 (2,539) 5,251 Total comprehensive income attributable to : Owners of the parent (4,826) 5,974 Non-controlling interest 1 10 (4,825) 5,984 Number of weighted average shares used for calculation of EPS (exclude treasury shares) - Basic (12) 3,655,315 3,597,607 - Diluted (12) 3,655,315 3,597,607 Earnings/(loss) per share for profit attributable to the ordinary equity holders of the parent during the year Basic (euro) (0.69) 1.46 Fully diluted (euro) (0.69)

19 Consolidated Balance Sheet as at 31 December After Appropriation of Result (in thousands of euros) Note Assets Non-current assets Intangible assets (13) 5,548 5,034 Property, plant and equipment (14) 9,184 11,042 Financial assets (15) Deferred tax assets (16) 1,737 5,269 Total non-current assets 16,541 21,564 Current assets Inventory (17) 7,044 7,645 Trade and other receivables (18) 9,677 10,120 Cash and cash equivalents (19) 1,788 1,416 Total current assets 18,509 19,181 Total assets 35,050 40,745 19

20 Consolidated Balance Sheet as at 31 December After Appropriation of Result (in thousands of euros) Note Equity (20) Share capital 1,919 1,919 Share premium 54,822 52,853 Retained earnings (39,157) (36,618) Translation reserves 3,019 5,298 Equity attributable to owners of the parent 20,603 23,452 Non-controlling interest Total equity 20,625 23,481 Liabilities Non-current liabilities Borrowings (21) 4,142 5,227 Other liabilities (21) Total non-current liabilities 4,359 5,441 Current liabilities Borrowings (21) 1,356 2,011 Trade creditors 6,236 6,510 Accrued expenses (24) 1,755 2,645 Provisions (22) Tax and social security Total current liabilities 10,066 11,823 Total liabilities 14,425 17,264 Total equity and liabilities 35,050 40,745 20

21 Consolidated Cash Flow Statement for the year ended 31 December (in thousands of euros) Note Cash flow from operating activities Operating result 830 1,376 Adjustments for: Depreciation and amortisation (13/14) 3,287 3,195 Interest received 3 25 Interest paid (299) (260) Changes in trade and other receivables (320) (625) Changes in inventories Changes in provisions (31) 147 Changes in trade and other payables (605) (17) Cash generated from operations 3,001 4,632 Income taxes (payment)/refund 177 (82) Net cash flow from operating activities 3,178 4,550 Investing activities Investment in intangible fixed assets (13) (1,142) (1,422) Investment in property, plant & equipment (14) (2,573) (3,941) Net cash flow used in investing activities (3,715) (5,363) Financing activities Proceeds from sale of shares 1,969 - Changes in borrowings proceeds (21) 3,548 12,384 Changes in borrowings repayments (21) (4,447) (11,003) Net cash flow from financing activities 1,070 1,381 Net increase/(decrease) in cash and cash equivalents Opening position as at 1 January 1, Foreign currency differences on cash and cash equivalents (134) (5) Foreign currency differences and other changes (27) 64 Closing position as at 31 December 1,788 1,416 The closing position consists of: Cash and cash equivalents (19) 1,788 1,416 1,788 1,416 21

22 Consolidated Statement of changes in Equity for the year ended 31 December (in thousands of euros) Non- Share Share Legal Retained Translation controlling Total capital premium Reserve earnings Reserve Total interests equity Balance at 1 January ,919 48,237 4,616 (41,739) 4,565 17, ,617 Changes in equity for 2016 Net profit/(loss) for the year ,241-5, ,251 Other comprehensive income for the year -Currency translation adjustments Other movements Total comprehensive income for the year , , ,984 Other movements - (120) - (120) - (120) Balance at 31 December ,919 48,237 4,616 (36,618) 5,298 23, ,481 Changes in equity for 2017 Net profit/(loss) for the year (2,540) - (2,540) 1 (2,539) Other comprehensive income for the year -Currency translation adjustments (2,279) (2,279) - (2,279) -Other movements (8) (7) Total comprehensive income for the year (2,539) (2,279) (4,818) (7) (4,825) Sale of treasury shares - 1, ,969-1,969 Legal reserve - (488) Balance at 31 December ,919 49,718 5,104 (39,157) 3,019 20, ,625 Please refer to note 20 for changes in share capital and reserves. 22

23 Notes to Consolidated Financial Statements Notes to for Company the year Only ended Financial 31 December Statement (1) General information Envipco Holding N.V. is a public limited liability company incorporated in accordance with the laws of The Netherlands, with its registered address at Arnhemseweg 10, 3817 CH Amersfoort, The Netherlands (Chamber of Commerce number: ). The company is incorporated in Amsterdam. Envipco Holding N.V. and Subsidiaries ( the Group or Envipco ) are engaged principally in Recycling in which it develops, manufactures, assembles, leases, sells, markets and services a line of reverse vending machines (RVMs) in the USA, Europe, Australia and the Far East. These Financial Statements have been approved for issue by the Board of Directors on 27 April 2018 and are subject to adoption by the shareholders at the Annual General Meeting of Shareholders. All amounts are in thousands of euros unless stated otherwise. Deposit redemption programs Under deposit redemption programs, the Company is responsible for the operation of systems to redeem, collect, account for and dispose of used beverage containers. In connection with these programs, participating retailers lease or purchase RVMs from the Company. The Company then acts in a clearinghouse capacity to collect deposits and handling fees on redeemed containers from participating beverage distributors and to distribute deposit refunds and handling fees to participating retailers. Accordingly, deposits and handling fees as paid to the participating retailers are not included as revenue and expense in the consolidated financial statements. The Company earns its revenues through leasing and selling machines to retailers and other participants, and through various services provided to distributors and retailers, including container collection, disposition, and accounting services. (2) Summary of significant accounting policies Basis of preparation The consolidated financial statements of Envipco have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (hereafter: IFRS) and are compliant with IFRS. Valuation of assets and liabilities and determination of the result takes place under the historical cost convention. Unless presented otherwise at the relevant principle for the specific balance sheet item, assets and liabilities are presented at amoritsed costs. Income and expenses are accounted for on accrual basis. Profit is only included when realised on the balance sheet date. Losses originating before the end of the financial year are taken into account if they have become known before preparation of the financial statements. Revenues from goods are recognised upon delivery. The cost of these goods is allocated to the same period. Revenues from services are recognised in proportion to the services rendered. The cost of these services is allocated to the same period. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity are disclosed in note 3. 23

24 Notes to Consolidated Financial Statements Notes to for Company the year Only ended Financial 31 December Statement New standards, amendments and interpretations applicable as of 1 January 2017 The Company has adopted the following new standards with a date of initial application of 1 January 2017: Disclosure Initiative (Amendments to IAS 7); Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12); Annual Improvements Cycle. Disclosure Initiative (Amendments to IAS 7) aims at clarifying IAS 7 for improved disclosure about an entity s financing activities. The amendments are designed to improve the quality of information provided to users of financial statements about changes in an entity s debt and related cash flows and non-cash changes. The Group evaluated the impact of each of the Disclosure Initiatives and concluded that it was in compliance. Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) IAS 12 Income Taxes: The amendments aim to clarify how to account for deferred tax assets related to debt instruments measured at fair value, particularly where changes in the market interest rate decreases the fair value of a debt instrument below cost. The Group has evaluated the standard and concluded that it was not material. Annual Improvements Cycle makes amendments to the following standards: - IFRS 1 First Time Adoption of Financial Reporting Standards: deletes short-term exemptions for first time adopters. - IFRS 12 Disclosure of Interest in Other Entities: Clarifies that disclosure requirements apply to an entity s interests irrespective of whether they are classifies as held for sale or as discontinued operations per IFRS 5. - IAS 28 Investments in Associates and Joint Ventures: Clarifies an entity s ability to choose between applying the equity method or measuring an investment in an associate or joint venture at fair value through profit and loss, separately for each associate or joint venture at initial recognition of the associate or joint venture. IFRS 1, 12 and IAS 28 amendments are not applicable to the Group. New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2017 and not adopted early by the Group: IFRS 9 Financial instruments replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on clarification and measurements of financial assets, which are to be classified into one of the categories i.e. amortised cost or fair value through other comprehensive income or fair value through profit or loss. The Group is evaluating the impact for implementation in future years. IFRS 15 Revenue from Contracts with Customers provides a single, principles based five-step model to be applied to all contracts with customers. In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition. Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. 24

25 Notes to Consolidated Financial Statements Notes to for Company the year Only ended Financial 31 December Statement Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. control of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. The directors of the Company anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Group s consolidated financial statements. The Group is evaluating the effect of IFRS 15 and is implementing as of 1 January IFRS 16 Leases sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract and replaces the previous leases standard, IAS 17 - Leases. IFRS 16, which is not applicable to service contracts, but only applicable to leases or lease components of a contract, defines a lease as a contract that conveys to the customer (lessee) the right to use an asset for a period of time in exchange for consideration. IFRS 16 eliminates the classification of leases for the lessee as either operating leases or finance leases as required by IAS 17 and, instead, introduces a single lessee accounting model whereby a lessee is required to recognize assets and liabilities for all leases with a term that is greater than 12 months, unless the underlying asset is of low value, and to recognize depreciation of leases assets separately from interest on lease liabilities in the income statement. As IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, a lessor will continue to classify its leases as operating leases or finance leases and to account for those two types of leases differently. The Group will be evaluating the impact for implementation in future years. Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) amends IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) to clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows: - require full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations) - require the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognised only to the extent of the unrelated investors interests in that associate or joint venture. These requirements apply regardless of the legal form of the transaction, e.g. whether the sale or contribution of assets occurs by an investor transferring shares in a subsidiary that holds the assets (resulting in loss of control of the subsidiary), or by the direct sale of the assets themselves. The Group will be evaluating the impact for implementation in future years. IFRS 2 Classification and Measurements of Share-based Payment Transactions (Amendments to IFRS 2) IASB issued following changes to IFRS 2: - The accounting for the effects of vesting conditions on the measurement of a cash settled share-based payment. - The classification of share-based payments transactions with a net settlement feature for with-holding tax obligations. - The accounting for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The amendments are not applicable to the Group as there were no share-based payments in Transfers of Investment Property (Amendments to IAS 40) clarifies the accounting for transfers of property to, or from, investment property. The Group will be evaluating the standard for implementation in future years, if applicable. IFRIC 22 Currency Transactions and Advance Consideration addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency, the entity recognises a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income, and the prepayment asset or deferred income liability is non- 25